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FDIC’s TAG Program Set to Expire

Senate blocks measure that would have extended guarantee for two years.

A Federal Deposit Insurance Corp. program that expanded safeguards for some business and government bank accounts will probably expire on Dec. 31 after the U.S. Senate failed to advance a proposal for an extension.

A 50-42 vote yesterday on a procedural motion fell 10 short of the 60 needed to move forward on a two-year extension of the Transaction Account Guarantee Program, effectively killing it. The TAG program, introduced in the wake of the 2008 credit crisis, guarantees $1.5 trillion in non-interest bearing accounts above the FDIC’s general limit of $250,000. An extension in 2010 is set to expire at the end of the year.

“Absent unforeseen developments, the TAG program will expire at the end of the year,” James Ballentine, executive vice president of congressional relations and political affairs at the American Bankers Association, said in an e-mail.

TAG, which provided unlimited backing for accounts used for payrolls and other business or government expenses, was opposed by Republicans as a bailout program that shouldn’t be continued. Groups such as the ABA and the Independent Community Bankers of America sought the extension as a way to keep accounts from being moved to bigger banks or money-market mutual funds.

“We’re disappointed that the Senate failed to vote on a temporary extension,” American Bankers Association President and Chief Executive Officer Frank Keating said in a statement. “The TAG program has been fully funded by the banking industry at no taxpayer expense and millions of small businesses and municipal depositors would have valued its continuation during this period of economic recovery.”

With the Senate’s rejection of TAG, Delaware Treasurer Chip Flowers is directing banks holding his state’s deposits to quickly set aside “sufficient collateral to ensure the safety and security” of the accounts, he said in a statement yesterday. This has to be done by the end of the month, according to a directive from Flowers’ office.

In October, the National Association of State Treasurers reaffirmed a resolution calling for TAG to be extended “to provide added stability and predictability at this still-fragile time for the economy and the financial system on which it depends.”

FDIC Chairman Martin Gruenberg said last week that community banks have sufficient liquidity to manage TAG’s expiration even if the deposits it attracts do migrate to bigger institutions.

“TAG was extended by statute through the Dodd-Frank Act, and the FDIC has traditionally deferred to Congress in deciding appropriate deposit insurance limits,” Andrew Gray, an FDIC spokesman, said in an e-mail.

CBO Report

The Congressional Budget Office, in a Dec. 10 report, estimated that the FDIC would be unable to cover potential losses from the program and projected that costs to the agency would extend beyond 2015. Republicans used the CBO findings to object to the TAG extension.

“It creates a new amount of spending above and beyond what was contemplated there,” Senator Patrick Toomey, a Pennsylvania Republican, said in a statement. “That is a huge problem in and of itself. So I would oppose this legislation on the substance of it, but in particular, I’m objecting to the fact that it does exceed this budgetary authority.”

The Senate vote was celebrated by the Credit Union National Association, which had lobbied against an extension.

“This is the first time that credit unions have vigorously opposed bank-backed legislation; it won’t be the last time,” CUNA President and CEO Bill Cheney said in a statement. “We will be alert for any attempt by banks to attempt to attach this bill to some other year-end legislative package.”

Brian Gardner, senior vice president and Washington policy analyst for Keefe Bruyette & Woods Inc., said yesterday’s vote probably signals the end for the program.

“It might not be fatal, but TAG is in intensive care and its vital signs are pretty weak,” Gardner said in an e-mail.

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